Oil, measured by the basic crude price, has touched $100 a barrel in international markets this week, bringing home a harsh truth to those who have missed hope with criticism, imagining that somehow the problem would go away. India has so far refused to bite the bullet. There have been unstated reasons, such as political pressures from the Left and issues such as the sensitive Gujarat assembly elections. The polls have come and gone, and crude has touched the dreaded three-figure mark. Oil marketing companies, still under government diktat after nearly two decades of wrangling over the dismantling of the administrative pricing mechanism, are reeling under ‘under recoveries’ that could be as high as Rs 250 crore a day because they are forced to charge less from petroleum product consumers. The government bails them out with ‘IOU’ bonds that only add to its own fiscal burden. Just what is going on?
It is becoming clear that the foot-dragging has to end. A wildly subsidised oil regime on the pretext of inflation control and growth management is just not on. Inflation measured by wholesale prices is now under 3.5 per cent and the government has reined in to a good extent speculative money supply going into real estate and fanning money supply that spurs price rise. Now is the time to pass on the hidden inflation concealed in the garb of ‘under recoveries’ and oil bonds. Industry might crib, as this would mean that interest rates won’t get cheaper. But there is increasing realism in industry as well. The Confederation of Indian Industry (CII) has already said that the country has to raise retail prices of fuel. Economic growth may suffer a little bit if inflation goes up, driven by fuel costs. However, that is a desirable thing.
Growth must result from robust demand, better technology and higher operational efficiency in the economy, not from artificial props such as subsidised fuel and artificially suppressed interest rates. It is time to increase oil prices — at least in well-planned doses.